Investment guru Jim Rogers believes that the bull market for stock and bond markets is over and says investors should get into commodities. There is a long-term bull market in commodities which will extend to 2014-2022, he told the Credit Suisse Asian Investment Conference in a keynote speech yesterday.

Rogers started the Quantum Fund with George Soros in 1973 and went on to make a fortune by the age of 37 before giving it up to become a best-selling author, lecturer and commentator, while maintaining his interest in investing.

His research indicated that the shortest commodity bull market lasted for 15 years while the longest was 23 years.

His own commodity fund index, which he set up on August 1, 1998, has increased by 243% since then, whereas the S&P index over the same period has risen 43%. Furthermore he asserted that whenever commodities were in the ascendancy stocks and bonds were in decline, and vice versa.

He reckoned that the big bull market for bonds in the 1980s and 1990s peaked out in 2003 and "has been in the process of making a big top ever since".

"So I would urge all of you to go home and sell all your bonds. I know some of you are bond managers - I would go home and look for another job," he advised the audience.

It was the same for stocks, at least in the West. By all the classic valuations that had stood the test of time - price earnings ratios, dividend yields, price to book ratios – stock markets were overvalued. The current stock market environment is similar to that of the 1970s with big trading ranges, which some people were able to exploit successfully.

"But most people are not very good at this. They need to have a secular bull market when markets are rising all the time to make a lot of money," he warned.

There is widespread ignorance of commodities, according to Rogers, which is reminiscent of attitudes towards stocks and mutual funds some 30 years ago, This is reflected in the 70,000 mutual funds available to the public to invest in stocks and bonds compared with fewer than 50 commodity funds.

The changes in global demand were taking place against a backdrop of the rise of China and the change in the status of the US dollar as the world’s reserve currency.
"It is amazing how many people do not understand the rise of China - China is the next great country in the world," he said. "I know they tell you that they call themselves communists in China - but I tell you they are among the world’s best capitalists right now," he said.

China had come along way since Deng Xiaopings’s open door initiative in 1978, "but this has a long way to go," he said. "If you see problems in China – get on the phone and buy as much of it as you can," he urged his audience.

Adding "it's something we need to understand because it is going to affect demand for lots of things and change the world as we know it."

The growth in demand for commodities, particularly oil, was due to the demand from mainly China followed by India. "This is just the beginning. The demand by Asia hasn’t even started yet," he said noting that China’s per capita consumption of oil was a fourteenth of that of the US and one tenth that of South Korea and Japan.

With many of the world’s major oilfields in decline, supply was tightening. Faced with the potentially huge increase in demand from China and India prices were destined to rise.

"If the price of oil goes to $150 they’ll be drilling for oil on the White House lawn," he quipped. The shift in the US from being a creditor nation in 1987 to being the biggest debtor nation in history with debts of $13 trillion would also have major repercussions for global demand.

"What is terrifying to me is that our foreign debt increases at the rate of one trillion every 15 months," Rogers said. The upheaval that would accompany the change in the dollar’s reserve status would be similar to that which accompanied sterling’s change in status some 60 years ago.

Rogers said that as it was US policy to debase the currency there would come a time when Asian countries, which were among the world’s biggest creditors, would start to get out of dollars and put them into real assets that stood to appreciate such as oil, gold and other commodities.

The US dollar was currently being propped up by Asian central banks, which continued their support partly because it was government policy to do so, and partly from bureaucratic inertia.


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